The Tax Hub

Worldwide Tax News

OECD

On 1 June 2015, the OECD published comments received in response to the public discussion draft for Action 8 (Cost contribution arrangements) of the Base Erosion and Profiting Shifting (BEPS) Project.

Action 8 requires the development of rules to prevent BEPS by moving intangibles among group members and involves updating the guidance on cost contribution arrangements. The discussion draft set out a proposed revision to Chapter VIII of the Transfer Pricing Guidelines and is intended to align the guidance in that chapter with the other elements of Action 8 already addressed in the Guidance on Transfer Pricing Aspects of Intangibles released in September 2014.

Click the following links for the discussion draft and the over 330 pages of comments received:

European Union

European Commission Agrees on the Need for New Approach to Corporate Taxation in the EU

On 27 May 2015, the EU College of Commissioners held an orientation debate where it was agreed that a new approach to corporate taxation in the EU is needed to successfully address tax abuse, ensure sustainable revenues and foster a better business environment in the internal market. The orientation debate will feed into an Action Plan in June, which will include a strategy to re-launch the works on the introduction of a Common Consolidated Corporate Tax Base (CCCTB) at the level of the EU, to implement measures against tax avoidance which are being developed at international level within the OECD, and to further strengthen tax transparency.

OECD

OECD Announces that Work on the BEPS Multilateral Instrument is Underway

The OECD recently issued a release announcing that work on the Multilateral‎ Instrument to implement the tax treaty-related measures developed as part of the Base Erosion and Profit Shifting (BEPS) Project began on 27 May 2015 in Paris. The development of a Multilateral Instrument follows the report produced as part of Action 15 of the BEPS Project, which looked at the feasibility of developing and employing such an instrument to implement the tax treaty-related measures.

During the 27 May meeting of the ad hoc group formed to develop the instrument, the Chair and Vice-Chairs were appointed and agreement was reached on a number of procedural issues so that the substantive work can begin at an Inaugural Meeting which will take place on 5-6 November 2015.

Czech Rep-Colombia

Tax Treaty between Colombia and the Czech Republic has Entered into Force

According to a recent update published by the Czech Ministry of Finance, the income tax treaty with Colombia entered into force on 6 May 2015. The treaty, signed 22 March 2012, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Colombian income tax and its complementary taxes, and the Czech tax on income of individuals and the tax on income of legal persons.

Residence

If a company is considered a resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If the authorities cannot reach mutual agreement, the company will not be entitled to claim any relief or exemption from tax provided by the treaty.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

Dividends - 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15%

Interest - 0% for interest on the credit sale of merchandise or equipment, on a loan or credit granted by a bank for a period of at least three years, or on a loan or credit guaranteed by the government; otherwise 10%

Article 12 (Royalties) includes the provision that if Colombia signs any convention, agreement or protocol with a third state that provides for a more favorable tax rate and/or treatment of income from the furnishing of technical assistance, technical services or consultancy services than provided for in the treaty with the Czech Republic, then such regime will automatically be applicable for the purposes of the Colombia-Czech tax treaty from the date on which the convention, agreement or protocol with the third state is effective.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

Gains from the alienation of immovable property situated in the other State;

Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and

Gains from the alienation of shares or comparable interests in a company resident in the other State

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

The treaty includes Limitations on Benefits Article (25). According to the provisions of the Article, the benefits provided under the treaty will not be granted to companies of either Contracting State if the purpose of such companies is to obtain benefits under the treaty that would not otherwise be available.

Effective Date

The treaty applies from 1 January 2016.

Guinea-bissau-Morocco

Tax Treaty between Guinea-Bissau and Morocco Signed

On 28 May 2015, officials from Guinea-Bissau and Morocco signed an income tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Iran-Poland

Tax Treaty between Iran and Poland to be Amended

According to recent reports, officials from Iran and Poland are planning to begin negotiations for amending the 1998 income tax treaty between the two countries. The treaty entered in to force 1 December 2006, and has applied since 1 January 2007. Any amendments must be finalized, signed and ratified before entering into force.

Malta-Netherlands

Malta and the Netherlands Terminate SSA

The Dutch government has announced that officials from Malta and the Netherlands have agreed to terminate the social security agreement between the two countries with retroactive effect from 1 May 2010. The agreement, signed 11 September 2001, had applied from 1 January 2003.

Nigeria- OECD

On 29 May 2015, Nigeria deposited the ratification instrument for the Council of Europe-OECD Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The convention will enter into force and apply for Nigeria on 1 September 2015.

Norway-Romania

Update - Tax Treaty between Norway and Romania Signed

On 27 April 2015, officials from Norway and Romania signed a new income tax treaty. Once in force and effective, the new treaty will replace the 1980 income and capital tax treaty between the two countries, which currently applies.

Taxes Covered

The treaty covers Romanian tax on income and tax on profit. It covers the following Norwegian taxes:

The national tax on income;

The county municipal tax on income;

The municipal tax on income;

The national tax relating to income from the exploration for and the exploitation of submarine petroleum resources and activities and related work, including pipeline transport of petroleum produced; and

The national tax on remuneration to non-resident artistes

Residence

If a company is considered resident in both Contracting States, then the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, place of registration and any other relevant factors. If the authorities cannot reach mutual agreement, then any relief or exemption from tax provided by the treaty will not apply unless agreed upon by the competent authorities.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through an individual or individuals present in the other state for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 10%

Interest - 5%

Royalties - 5%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the Articles

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

Gains from the alienation of immovable property situated in the other State;

Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and

Gains from the alienation of shares or comparable interests in a company, the assets of which consists wholly or principally of immovable property situated in the other State

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply from 1 January of the year following its entry into force.

The 1980 treaty between the two countries will terminate once the new treaty enters into force, and will cease to have effect from the date the new treaty is effective.